ETF Solutions, LLC™ TandemModels®

TandemModels® SaaS technology was developed for ETF Providers and Investment Managers. TandemModels® is a single platform environment of portfolio accounting, asset allocation model design and management, trading, cash flow balancing and rebalancing of portfolios, performance reporting, custodial integration and reconciliation.

Software Integration

A recent study by Aite Group states, “RIA firms (Investment managers) waste an average of two days per week on operational tasks, rather than serving existing clients or acquiring new clients, when they are not using fully integrated systems. An integrated system can boost firm revenue by up to 30 percent by giving them more time to focus on client service and practice management.”

“When firms have a fully integrated system their entire staff spends 11 percent less time dealing with operational tasks and 10 percent more time on client acquisition and prospecting. For supporting advisors these numbers are even more dramatic as they spend 15 percent more time on client acquisition and prospecting.”

“Investment Managers that have some integration have close to twice the amount of investable assets compared to RIAs that lack integration.”i

Single Platform Environment beyond Integration ETF Solution’s TandemModels® SaaS technology goes beyond integration and eliminates the problems and costs associated with software integration. SaaS technology eliminates the costs for servers, software license fees, IT support, upgrades, data backup, data security and disaster recovery. SaaS platforms can reduce technology costs up to 72% compared to Application Service Provider (ASP) and application software.

ETF Solutions™ provides ETFs and investment managers patented (pat. US 8,060,428 and 8,639,604) SaaS technology. No client data is exported or outsourced from TandemModels®. Invest n Retire does not use any software applications all technology is 100% proprietary and Invest n Retire provides all data security and disaster recovery. Unlike software integration systems that offer web-based platforms that integrate with software that can be purchased separately and which requires client data to be exported and outsourced to other software.

TandemModels® provides a vertically integrated investment solution that gives investment managers the ability to trade intraday with access to real-time pricing with FIX module for ETF and securities trading. Darwin Abrahamson, CEO of ETF Solutions, LLC stated “We believe that investment managers will benefit from leveraging TandemModels® trading technology to reduce transaction costs and minimize market impact, while improving execution quality.”

TandemModels® is designed to provide new efficiencies when incorporating ETFs in an investment portfolio allowing managers to focus more of their time on client service and practice management.

Custodial Accounts TandemModels® allows each manager to establish one custodial account with removes the cost and data transfer problems created with custodial reconciliation on thousands of client’s individual custodial accounts. Investment managers, advisors or the TAMP establishes each clients’ accounts online using TandemModels®. TandemModels® custodial fees can be as low as 2 bps with no transaction fees.ii TandemModels® allows plan participants and clients to own whole and

fractional shares of ETFs in their accounts compared to whole shares required with separate client custodial accounts.

Custodial Trading Fees are a Major Problem

The big four RIA custodians are now charging advisory firms giant new fees — in the tens of thousands in some cases — relating to some ETF purchases.

Schwab Advisor Services, TD Ameritrade Institutional, Pershing Advisor Solutions LLC and Fidelity Institutional Wealth Services are levying what are known as “trade-away” fees to RIA firms that buy exchange traded funds through a broker-dealer other than the one owned by the custodian. The advisor typically chooses to use these third parties because they believe that RIA custodians are executing trades poorly along the bid-ask curve and forcing them to make ETF purchases at unacceptably high prices. Where the magnitude of the charges come clear is when, for example, an RIA trading across the accounts of 500 clients pays $10,000 and an advisor who has 1,000 clients gets hit with a $20,000 charge.

Industry leaders say these new ETF fees from custodians are a major problem and are having a negative impact on the positives of ETFs.iii

Portfolio Design and Trading

TandemModels® allows each investment manager to design and manage unlimited number of portfolios which the manager can link to either clients’ accounts or DC plans. TandemModels® provides live trading for all Investment managers during market hours or restricted hours can be set by the manager. Trades for all clients’ accounts are traded as an omnibus trade through a FIX (Protocol Conversion) module to the designated broker selected by the TAMP or investment manager. All portfolio rebalancing and investment changes in portfolios are traded (Sells and Buys) and executions posted the same day to all clients’ accounts. TandemModels® also provides trade execution reports on all trades. Automatic quarterly rebalancing is an option for each investment manager. With TandemModels® the investment manager does not have to purchase or lease an Order Management System. All trades are executed using Self-Aligning Portfolios™.

Self-Aligning Portfolios™

ETF Solution’s patented system (patent U.S. 8,060,428) includes a unique feature within itstrading component, Self-Aligning Portfolios™.iv Instead of investing an employee’s payroll contribution or clients’ contributions based on the percent allocation for each investment option within the model‚ our system analyzes each holding based on live pricing within the portfolio and determines if each holding is under-weighted or over-weighted according to the percent allocation for the model.

After the pricing analysis‚ our system purchases more shares for any investment that is under-weighted and fewer shares for any investment that is over-weighted. “By investing contributions using this methodology‚ each portfolio maintains its balance by self-aligning itself with each cash flow‚” explains Darwin Abrahamson‚ CEO ETF Solutions‚ LLC.

Portfolios Risk / Reward Characteristics

Portfolios become skewed out-of-alignment due an increase in the value of some of the assets in the portfolio or a decline in value. This imbalance may result in a portfolio with a higher risk/reward characteristic than originally intended. Since our self-aligning technology uses payroll contributions and cash flows to maintain alignment‚ each portfolio maintains its risk/reward characteristic.

The advantages of Self-Aligning Portfolios™ are obvious:

(a) this method maximizes the investment strategy known as dollar-cost-averaging

(b) mitigates risk in all market environments by maintaining portfolio alignment, as closely as possible, with its target asset allocation

To ensure that each model maintains its alignment, TandemModels® automatically rebalances each portfolio quarterly. With Self-Aligning Portfolios™ less trading is required at the end of each calendar quarter to bring the portfolio into alignment with the portfolio's target asset allocation which reduces trading costs.

Client Reporting

TandemModels® provides time weighted performance reporting on client’s statement and GIPs reporting for investment manager’s portfolios. TandemModels® provides detailed transactions report which include any trading costs and SEC fees. Client’s portal can be customized with TAMPs or investment manager’s logo and colors and is smart phone accessible.

Summary

ETF Solution’s SaaS technology for ETFs and investment managers reduces total operating costs and staff hours required to service clients which increases your firm’s net income. Eliminates the requirement of a custodial account for each client and eliminates steep custodial trading fees. Investment managers can now manage small accounts cost effectivity and compete with the new wave of Robo-Advisors. SaaS is an all-inclusive business architecture which delivers value rather than just the software at a cost.

i Aite RIA Productivity and Profitability: Integration Pays 2013 ii Huntington National Bank iii RIA custodians charge steep new ETF-related fees RIABIZ November 18, 2013 iv Self-Aligning Portfolios is an integral component of INR’s patented technology